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Average British Columbians unprepared for 'tsunami of debt-related problems'

An astonishing half of the British Columbians polled by The Province/Ispos Reid reported they they don't know where their money goes.

Photograph by: Submitted
, istockphoto.com

British Columbians are flirting with financial disaster. Only half of us save anything on a regular basis. A third of us don’t keep records of our spending, set a household budget or have a plan to reduce debts. No wonder 44 per cent of us are apprehensive about retirement. We need to become more financially literate. Our future depends on it.

In MoneyWise, a six-part series running Sundays, The Province will help you and your family get a better grip on your finances. We will offer guidance on saving, investing and spending tailored to the needs of all age groups.

British Columbians are making a mess of their financial lives — and they know it. What they don’t know yet, experts warn, is how much that should worry them.

B.C. residents give themselves poor marks when it comes to financial literacy, according to a poll done exclusively for The Province by Ipsos Reid.

“We need to get scared and I think we’re going to get scared as these problems finally become known and understood,” says Robert Ironside, a finance professor at Kwantlen Polytechnic University.

“The average person in B.C. and around the world has no idea yet what is coming — which is a tsunami of debt-related problems.

“I think it’s very grim.”

Canadians as a whole face unprecedented financial challenges. Late last year, Canadians’ debt-to-income ratio jumped to 148.1 per cent, exceeding free-spending Americans’ ratio for the first time in a dozen years.

In other words, for every $10,000 you earn, you owe $15,000.

Thirty-eight per cent of Canadians have no savings at all, according to TD Bank.

The Province/Ipsos Reid poll paints a bleak picture of the degree to which debt has suffused the lives of British Columbians.

British Columbians regard debt reduction as their greatest challenge. Half of us label it as their top financial goal, the poll shows.

Getting rid of debt is a much more pressing concern than is saving for retirement (44 per cent say that’s their top priority), or keeping up with daily expenses (38 per cent).

Almost a third of respondents identify high levels of debt, including mortgages, as the biggest barrier they have in achieving financial security. Debt payments are second only to mortgages as the biggest expense British Columbians face.

How did we pile on so much debt? A lot of British Columbians don’t have a clue: The Province/Ipsos Reid poll shows an astonishing half of us don’t know where our money goes.

Only 47 per cent of B.C. residents keep detailed records of how they spend their money. A meagre 17 per cent bother drawing up a written plan to achieve their financial goals

“That’s concerning,” says Kyle Braid, vice-president of Ipsos Reid Public Affairs in Vancouver. “We’re not good at planning or budgeting.”

And the real percentage of people who compile detailed records of their spending may be even lower.

“If you ask people in discussion or focus groups what they mean by detailed records, for many it’s simply looking at their credit card statement,” Braid says.

In other evidence of our lack of financial literacy, the poll shows that only 39 per cent of British Columbians take the trouble to draw up a personal or household spending budget. Of those who do, 54 per cent rate themselves as fair, poor or very poor in terms of sticking to that budget.

The irony is that we profess to be aware that uncontrolled spending is mucking up our financial lives. Almost half of respondents — 45 per cent — acknowledge they are fair, poor, or very poor at keeping a grip on their spending.

Of those who have managed to save, 55 per cent say they are doing a fair, poor or very poor job at investing those savings.

“The real question is if we know we’re not doing a good job in this regard, why don’t we have these records?” Braid asks.

“If I were a personal financial planner I would see this as a fantastic opportunity. There is a lot of potential business out there,” he adds.

“People need help to do what they know they should be doing.”

The results are similarly dismal when British Columbians are asked to grade their knowledge of personal finance, and their application of that knowledge. B.C. residents, as a whole, have a surprisingly poor grasp of basic financial management. Forty-six per cent assess their knowledge level as only fair, poor or very poor.

Our ability to follow through on our knowledge is even worse. Asked how well they actually do what they know they should be doing, 59 per cent of respondents rated their performance as fair, poor or very poor.

“That’s a pretty bleak [self] assessment,” Braid says. “British Columbians aren’t confident they know what to do and a lot of them are pretty sure they aren’t doing the right things.”

It’s no wonder that so many people in B.C. worry about whether they’ll have enough money when they retire. Only half of us — 54 per cent — are confident that we’ll be financially secure when we retire.

A quarter of seniors are nervous about their financial security.

“That’s another concerning number,” Braid says.

Thirteen per cent of people aged 65 and older say mortgage payments remain their biggest expense. That’s only one in 10 now but this percentage will likely soar as younger adults can only afford to buy their first home later and later in life, Braid says.

“Twenty or 30 years from now we’ll possibly see double or even triple the number of people in that category having mortgage as their No. 1 expense,” he says.

Despite all these challenges, British Columbians remain remarkably upbeat about their financial futures. Sixty-nine per cent of us are confident about meeting our financial goals.

Vancouver-based financial adviser Adrian Mastracci says people can convert blind optimism to realistic optimism by getting a grip on their saving, spending and investing.

“It’s too easy to get wrapped up dwelling on the negatives,” says Mastracci, portfolio manager with KCM Wealth Management.

“Rather, get a handle on what it takes to reach personal goals. Everyone needs to reach that personal balance between spending for today and saving enough for tomorrow.”

J.Y. Fores-Pimentel, a single parent in Richmond with two children, says society encourages people to think they can spend more than they earn — and gives them credit cards that make it easy to tumble into unmanageable debt.

Fores-Pimentel, 31, became caught in the debt trap but freed herself by curtailing spending and cutting up her credit cards. She moved back with her kids to her parents’ house earlier this year and has paid off everything she owed.

By living frugally, Fores­Pimentel expects to have enough saved to make a down payment on her own home in about 18 months.

“You have to change your lifestyle and it’s really difficult,” she says. “But there is such a sense of freedom in being debt-free.”

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